China, Japan LNG imports hit record, may boost spot

Reuters News
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Posted: Jul 21, 2011 5:03 AM
China, Japan LNG imports hit record, may boost spot

By Risa Maeda and Jim Bai

TOKYO/PERTH (Reuters) - Japan and China's liquefied natural gas (LNG) imports surged to a record in June as demand for the fuel from utilities in both the countries rose.

Increasing LNG demand from China just as Japan, the world's largest importer of LNG, also ramps up imports is likely to increase competition for supplies for the rest of the year, a factor that could boost spot prices.

"There will be a lot of competition for available LNG tonnage in the second half of the year," Tony Regan, an analyst for Tri-Zen International in Singapore. The June import numbers could be a sign of increased buying for the rest of the year.

Imports by Japan rose 10.6 percent year-on-year in June, marking it a third consecutive month of increases as utilities stepped up imports to make up for the loss of nuclear reactors shut by the March earthquake and tsunami or kept offline due to safety concerns.

China imported a record 1.04 million tonnes of liquefied natural gas in June as the country prepared for increased summer demand when gas-fired power plants rev up operations.

"We might be seeing this great leap forward in the (Chinese) gas market," Regan said.

The Japan Crude Cocktail (JCC) price, or the average price for customs-cleared crude oil imports which is used as the benchmark for LNG prices for Japanese buyers, fell to $114.68 a barrel in June. The price peaked in May at $118.58, the highest since September 2008.

JAPAN "STRESS TESTS" SQUELCH NUCLEAR

Fears in Japan about the safety of nuclear power, which made up about 30 percent of the nation's generation capacity prior to the crisis, have kept several nuclear reactors offline after planned maintenance.

Chances of an imminent restart of any nuclear reactors that are ready to come back online after maintenance now look slim given newly imposed safety measures.

Japan announced plans to order "stress tests" for the nation's nuclear reactors, hoping to bolster public confidence shaken by the crisis at the Fukushima Daiichi nuclear complex.

Industry experts have said that LNG will serve as a key substitute for nuclear power. In a worst case scenario, a total nuclear shutdown in Japan would likely add 20 million tonnes of LNG to the nation's yearly demand. In 2010, Japan imported 70 million tonnes of LNG.

Thursday's data showed Japan's imports of LNG totaled 6.228 million tonnes last month. The pace of year-on-year growth slowed to 10.6 percent from 26.0 percent in May.

CHINA IMPORTS TO CLIMB

Chinese demand for LNG has been rapidly increasing this year as power consumption grows and LNG imports are set to grow further as new terminals continue to come online this year.

Imports were 4.3 percent higher on a daily basis than in December when the country brought in the highest volume, 1.03 million tonnes, of LNG to meet winter demand, according to Reuters calculations.

Power demand from gas plants supplied by CNOOC's Fujian LNG terminal in one of the reasons that LNG increased sharply from a year earlier.

PetroChina, the country's top gas producer, has also started shipping in the chilled gas to test its first LNG receiving terminal in eastern Jiangsu province and has used gas to help ease power shortages in some Chinese provinces.

"LNG imports will still increase for the coming months," analyst Liutong Zhang with FACTS Global Energy said, adding that two new terminals - Rudong and Dalian - will be key in adding to volumes but at least some of the demand will be met by long-term contracts.

"The new imports will be partly from their long-term contracts with Qatar."

FACTS Global Energy forecasts that China will import 13 million tonnes of LNG in 2011, up from 9.3 million in 2010 and will overtake number two importer South Korea before the end of the decade.

Gas-fired power generation, a tiny part of China's electricity output, is mostly used as backup supply as it is more expensive than China's prevalent coal-fired production.

(Reporting by Risa Maeda in TOKYO, Jim Bai and Ken Wills in BEIJING and Rebekah Kebede in PERTH; Writing by Rebekah Kebede in PERTH; Editing by Edmund Klamann and Manash Goswami)